Industry overview

The development of natural gas in Australia

What is natural gas?

Natural gas occurs in underground reservoirs and is generated by rocks formed where plant and animal matter have been trapped and exposed to heat and pressure over millions of years. It generally consists of methane and varying amounts of other gases such as nitrogen and carbon dioxide and sometimes heavier hydrocarbons such as ethane and butane.

What is it used for?

The primary use for natural gas in Australia is electricity generation. About a fourth of Australia's primary energy consumption is generated from natural gas1. Natural gas is also used as a fuel in a variety of mining and manufacturing processes (for example, smelting and refining metals) as well as in homes and businesses for cooking and heating.

Natural gas from Australia is also exported as liquefied natural gas (LNG) to other countries where it is primarily used for electricity generation.

How is it extracted?

Up until the 1990s in Australia, natural gas was primarily extracted from what are known as conventional reservoirs. These are made from permeable rock (typically sandstone) and readily release gas upon being drilled. The gas in these reservoirs is held as free-gas in micro-pores and sealed in by an overlying, impermeable cap-rock. The gas usually originates from ‘source rocks’ such as shales and coals located some distance from the reservoir. The gas migrates over time via natural processes into the reservoirs.

Substantial amounts of the same sort of gas (and sometimes oil) are also found in ‘unconventional’ reservoirs. Typically, these are either relatively impermeable sandstones (tight gas) or the same types of source-rocks (coal seam gas and shale gas) which feed the conventional reservoirs.

Gas from such unconventional reservoirs is generally more expensive to produce. Often less gas per well can be recovered and/or at lower rates. Sometimes, production needs to be stimulated through hydraulic fracturing, horizontal drilling or simply by drilling more wells.

Where in Australia is it found?

Gas was first discovered in the Roma region of Queensland in the late 1890s when a water well struck a gas pocket in a conventional sandstone reservoir. While the very large offshore oil and gas fields of the North West Shelf (WA) and the Bass Straight are widely recognised, it is less well known that conventional oil and gas reservoirs have also been developed onshore Australia for decades.

Examples of areas where onshore gas is found are the Surat and Bowen Basins (QLD), the Eromanga & Cooper Basin (QLD and SA), the Otway and Gippsland Basins (VIC), the Gunnedah Basin (NSW), the Amadeus Basin (NT), and the Perth Basin (WA).

Why is the industry developing so quickly?

Since the mid-1990s in Queensland, gas has been produced from unconventional reservoirs (coal seams) for domestic consumption. Coal seam gas now accounts for about 80% of the Queensland's domestic gas supply2.

During the mid-2000s, the global LNG price rose significantly. This created a situation in which previously marginal gas might become commercial. In 2007, the first of several proposals was put forward to convert coal seam gas to LNG and export it to attract global prices.

Government approval of three major CSG-LNG export projects in Queensland has paved the way for large amounts of relatively expensive gas to be developed from coal seams in the Surat and Bowen Basins. This is the first time in the world that gas from unconventional reservoirs has been used for LNG export. Meanwhile, reserves of shale gas, tight gas and coal seam gas are being explored in several other regions of Australia.